Tax treatment of loan arrangement fees

by Readers Question

10:26 AM, 5th August 2015
About 3 years ago

Tax treatment of loan arrangement fees

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Tax treatment of loan arrangement fees

It was mentioned recently in another discussion that re-mortgage arrangement and broker fees are not allowable expenses , but are instead treated as capital costs. This clearly has some relevance to the ongoing debate on tax relief of loan interest changes in the budget.fee

My research ( and personal experience) points that they should be allowable expense ( “incidental cost of finance” ) allowable in the year incurred – and no need to amortise over the life of the mortgage.

Quote from accountants website “Arrangement fees are fully tax-deductible against rental profits – finance fees are NOT capital costs. This is the case for any business, not just landlords, for example recently Manchester United re-financed a £500m loan and paid an £8m arrangement fee – the tax treatment is the same for them as for you! For the tax boffins, HMRC even (for the avoidance of doubt) refer to this in their ‘Property Income Manual’, section PIM2066, and the relevant legislation is the Income and Corporation Taxes Act 1988 Section 77, and ‘Income Tax (Trading and Other Income) Act 2005 section 272.

Finance fees are almost always added to the loan by landlords (though they can be paid upfront – not good for cashflow!). It makes no difference to the tax deductibility of the finance fee expense whether the fee is paid or added to the loan, as the tax deduction is allowed when the expense is incurred, NOT paid. You know that the expense has been incurred because the lender won’t give you a refund and charges you interest on the fee! This is the same principle as paying an expense by credit card (i.e. deferring the actual payment of the expense) – the tax deduction is allowed when the expense is incurred.”

Does anyone have experience of this being challenged or refused? HMRC website is not very clear or helpful.

Duncan



Comments

Mark Alexander

8:16 AM, 6th August 2015
About 3 years ago

They are allowable expenses at the moment.
.


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